1. 25 Investments: Introduction
  2. 25 Investments: American Depository Receipt (ADR)
  3. 25 Investments: Annuity
  4. 25 Investments: Art and Collectibles
  5. 25 Investments: Bonds
  6. 25 Investments: Cash
  7. 25 Investments: Closed-End Investment Fund
  8. 25 Investments: Common Stock
  9. 25 Investments: Convertible Bonds
  10. 25 Investments: Corporate Bond
  11. 25 Investments: Futures Contract
  12. 25 Investments: Life Insurance
  13. 25 Investments: The Money Market
  14. 25 Investments: Mortgage-Backed Securities
  15. 25 Investments: Municipal Bonds
  16. 25 Investments: Mutual Funds
  17. 25 Investments: Options (Stocks)
  18. 25 Investments: Exchange-Traded Funds
  19. 25 Investments: Preferred Stock
  20. 25 Investments: Private Equity
  21. 25 Investments: Real Estate & Property
  22. 25 Investments: Real Estate Investment Trusts (REITs)
  23. 25 Investments: U.S. Treasury Securities
  24. 25 Investments: Unit Investment Trusts (UITs)
  25. 25 Investments: Venture Capital
  26. 25 Investments: Zero-Coupon Securities
  27. 25 Investments: Conclusion

Investors buy annuities from insurance companies to ensure they have enough income to live in retirement.  An annuity represents a series of fixed-amount payments paid at regular intervals over time.  An investor receives these payments in exchange for contributing a lump sum, upfront payment to the insurance company.  Annuity contracts can last the entire life of the policy holder.  Because of this, they offer protection against longevity, or outliving your investments.   Payouts don’t generally increase because of inflation, but certain contracts do offer some inflation protection. 

There are several types of annuities.  Deferred annuities are just that – payments are deferred until a future date.  In exchange for this deferral, payments in the future are likely to be higher than immediate annuities where payments start soon after an investor buys them for an upfront lump sum.  Variable annuities combine insurance and investing where future payouts are based off how the underlying investments perform.  These can be returns earned from index-based investments, such as the S&P 500, or even commodity-based indexes.  They can also offer some type of downside protection should stock market returns fall below a certain base level and also have a death benefit   


Objectives and Risks


Annuities can be appealing to investors worried about more uncertain stock market returns.  Those with family histories of longevity could also benefit by the lifetime payouts.  Additionally, it lets investors essentially inherit the balance sheet of a large insurance company, and government-related entities can provide backing in the rare case that the insurance company goes out of business.


Annuity contract terms are rather complicated, and insurance companies can at times change the terms of original contracts entered into.  Many have tax deferral benefits where gains accrue without tax consequences and until payouts or withdrawals start.



How to Buy or Sell It


Insurance brokers generally control the market for individual investors to buy annuities.  They cannot be sold, but they can be redeemed with an insurance company.  Early redemption/surrender fees are usually onerous but decrease the longer an annuity is held.





Annuities offer downside protection in a declining stock market environment.  Annual returns are much more fixed, and even come with some level of guarantees, or fixed returns regardless of how financial markets perform.

They offer one of the best offsets to longevity risk, or the risk an individual might outlive his or her investments.

Insurance offers pooled risk that helps individual investors.




Variable annuities offer less downside market protection

Annuity contracts are complicated and carry what can be significant surrender fees.

If you die early, then you will not get back the full value of your investment.  It is the downside to longevity risk where the insurance company benefits when the policy holder doesn’t live that long.


Key Considerations


Liquidity:  Medium

Historical Returns:  Medium

Inflation Protection:  Low

25 Investments: Art and Collectibles
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